This high yield stock looks interesting
Every income investor wants to own high yielding stocks. But the reality is that most high yielding stocks aren’t the safest bets. In fact, they’re much more likely to see their dividends cut compared to lower-yielding blue-chip, dividend-paying stocks.
So at first glance, LP Global Partners (NYSE: GLP) looks like another super high yield: He’s from the volatile energy sector, and he’s already cut his payouts.
However, BPL shares now deserve the attention of investors because, over the past year, their payouts have been on the rise, steadily.
Global Partners is a Master Limited Partnership (MLP) based in Waltham, MA. It is one of the largest independent owners, suppliers and operators of gas stations and convenience stores in the Northeast, with approximately 1,550 locations.
At the same time, the MLP owns, controls or has access to one of the largest terminal networks in New England and New York, through which it distributes gasoline, distillates, residual oil and from renewable fuels to wholesalers, retailers and business customers. . In addition, the partnership transports petroleum products and renewable fuels by rail from the center of the Americas and Canada.
As mentioned above, Global Partners comes from the volatile energy sector and their distribution history is not perfect. The MLP cut its quarterly payout in early 2016. While the company increased its distribution in 2018 and 2019, it announced another cut in April 2020 – not much of a surprise, considering what happened to the industry. energy last year, but nonetheless a disappointment for investor income. (Source: “Distribution history», Global Partners LP, last accessed April 29, 2021.)
Here’s the thing: While some companies have yet to fully recover from the extraordinary economic environment of the past year, Global Partners has very quickly started to return more liquidity to investors. In fact, since reducing its quarterly payout rate from $ 0.525 per unit to $ 0.39375 per unit in April 2020, GLP has increased its payout on a quarterly basis.
The latest increase in distributions was announced on April 26, when the board of directors of the Company’s general partner increased the quarterly cash distribution by 4.5% to $ 0.575 per unit. The newly declared distribution is payable on May 14 to Unitholders of record on May 10. (Source: “Global Partners Reports Increase in Cash Distribution on Common Units for Q1 2021», Global Partners LP, April 26, 2021.)
Keep in mind that prior to the reduction in distributions last year, shares of Global Partners LP had a quarterly distribution rate of $ 0.525 per unit. In other words, the MLP has not only generated back-to-back pay increases since the reduction, but is now paying almost 10% more than the pre-pandemic level.
In addition, the BPL stock has recovered and is now showing a higher unit price compared to what it was before the stock market crash last year.
But that did not change the status of the partnership as very profitable. At the current unit price, the Global Partners LP share offers investors a forward distribution yield of 10.3%.
Looking at the financial data, we see that in 2020, Global Partners generated a net profit attributable to the partnership of $ 102.2 million; adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $ 287.7 million; and distributable cash flow of $ 156.4 million. Each metric represented an improvement year over year. (Source: “Global Partners Reports Fourth Quarter and Full Year 2020 Financial Results», Global Partners LP, March 5, 2021.)
More importantly, distributable cash flow was significantly greater than the amount of cash needed to pay distributions last year.
On the fourth quarter earnings conference call, Partnership CFO Daphne Foster said: “[Trailing-12-month] distribution coverage at December 31, 2020 was healthy 2.4 times or 2.3 times after accounting for distributions to our preferred unitholders. We generated excess cash flow after distributions and after expansion [capital expenditure] Net of proceeds from the sale of assets of approximately $ 62 million. ” (Source: “Eric Slifka, CEO of Global Partners LP (GLP), on Fourth Quarter 2020 Results – Earnings Call Transcript, ” Seeking Alpha, March 5, 2021.)
Conclusion on Global Partners LP
And There you go. GLP stock is not the perfect dividend stock, but with strong distribution coverage and consequent increases in payouts, Global Partners LP deserves the attention of yield-seeking investors.